1. What do you mean by Business Environment ? What are the nature/ characteristics of Business Environment ?
Ans - Business Environment is the overall climate created by internal and external sources within which an enterprise operates . It reflects the overall status of affairs that affects entire business community .
Nature / Characteristics - 1. Forces Influencing Business - Business environment includes all those forces , factors , institutions which directly or indirectly affect the working of business organisations.
2. Inter - Related factors - Various factors influencing business environment are inter- related to each other . For e. g. - The increase in purchasing power of the middle class facilities has increased the demand of durable such as , T.V. refrigerator , washing machine etc.
3. Uncertainty - Business Environment is uncertain . Since rapid changes are taking place in the factors influencing it .
4. Direct and Indirect Factors - There are factors such as customers , suppliers , investors , etc , which has direct bearing on the business environment . Some factors like social , legal , political , etc have indirect influence on the business environment .
5. Dynamic - Business environment is very dynamic and keeps on changing . It is necessary to keep a constant watch on changes and scanned the impact on the business .
6. Complex- Business Environment is very complex since it influenced by a number of factors .
2. What are the dimensions or components of business environment ?
Ans - The main components of business environment are as follows -
1. Economic Environment - It includes all the forces which regulate resources , factors of production , generation and distribution of income and wealth in a social setup . Economic Environment has direct impact on the working of every business . The aspects of Business Environment are as follows -
(a) The role of public and private sectors in the economy .
(b) The rate of growth of GDP, GNP, Per Capita Income .
(c) Rate of savings and investments.
(d) Balance of trade and balance of payments .
(e) Public Debts , etc.
2. Social Environment - Social Environment consists of all the social , and cultural forces within which firms operates . It consists of social setup , cultural , moral , ethical values of society , standard of living , tastes education levels , etc. Some aspects of Social Environment are as follows-
(a) Family Structure and values .
(b) Quality of Life .
(c) Education and Literacy rates .
(d) Birth and death ratio .
(e) Income and wealth distribution .
3. Political Environment - It consists of factors relating to government affairs . It includes the political party system in the country , their ideologies government attitudes towards different sections of the society etc . The aspects of political environment are as follows -
(a) Present Political system .
(b) Constitutional framework .
(c) Political structure.
(d) Profile of political leader .
(e) Political philosophy .
4. Legal Environment - Business has to function within the framework of laws and regulations of the country . Legal environment therefore , exercises a significant influence on business activities. Some aspects of Legal Environment are as follows -
(a) Rights and Duties of Citizens .
(b) Various laws relating to license .
(c) Laws relating to foreign trade .
(d) Laws relating to advertisement .
(e) Various laws and legislative Acts , etc.
5. Technological Environment - It relates to scientific improvements and innovations proving newer and better methods of production , new methods and techniques of operating business . The aspects of Technological Environment are as follows -
(a) Development of IT sector .
(b) Scientific improvements.
(c) Innovations in manufacturing sectors .
(d) Technological advancements in computers .
(e) Import of latest technology .
3. How does economic environment influence business and industry ?
Ans - 1. Economic Environment - There are three economic structures like - Capitalist , socialist and mixed economy . Under Capitalist System , all industrial decisions are left to the creation of businessman . In Socialist system , the decisions are taken with public welfare in mind. In a mixed economy , both public and private sector are assigned specific rules .
2. Economic Planning - A system of planning followed to achieve short term as well as long term objectives of development . India is following five year plans .
3. Economic Policies - The importance economic policies which influence business decisions are monitory policy , fiscal policy , industrial policy , government policy , etc.
4. Infrastructure - The availability of adequate infrastructure is necessary for proper development of country . The infrastructure factors includes Rail , Roads, Ports , Air Service etc.
5. Economic Indicators - The main economic indicators are - N. I. , Per Capita Income , Saving rate , investment rates , Balance of Payments , GDP, GNP , etc.
4. Why is Business Environment important for business ?
Ans - 1. Advantage of Early move - A businessman who is aware of the coming opportunities and changes in the environment may benefit by his early moves .
2. Analysing Business Trends - Environment creates newer and better opportunities for different types of business. An entrepreneur should move with the time and get the available opportunities.
3. Long Term Planning - With the help of prevailing business environment long term planning should be undertaken by forecasting the likely changes in it .
4. Latest Technological Needs - Business environment helps in bringing latest technology in the industry .
5. Helpful for managerial response - The success of an enterprise depends upon the quality of management . The quality of management will be assured from its responses to the changes caused by business environment .
5. Explain various changes initiated by government in economic policy in 1991 ?
Ans - After Independence in 1947 , government of India instituted steps for development of country . The first industrial policy was announced in 1948 and then in 1956 , the main role of development was given to public sector . The role of private sector was limited to certain sectors . The main features of new development plans are -
1. Abolition of Industrial licensing - Only three industries remained under licensing system .
2. Limited role of public sector - Except three industries , all other industries are opened for private sector .
3. Liberalization of foreign investment- Foreign investments were allowed over 50% in the large number of industries.
4. Liberalized Foreign Trade - Restrictions were removed on Foreign trade . Import duties were cut and procedures were simplified .
5. Technological upgradation - Permission was automatically granted to Indian companies for signing technology improvement agreement with foreign companies.
6. Initiative for small scale sector - Enhanced support was announced to encourage small scale sector .
6. What are the major changes in New Economic Policy ?
Ans - New Economic Policy changes in relation to -
(a) Liberalisation
(b) Privatisation
(c) Globalisation .
(a) Liberalisation - It is the process of freeing up the economy from licensed system and other regulations . The following reasons for liberalisation are as follows -
1. Licensing system was abolished except for three industries .
2. Liberalised import regime by reducing custom duties , tariff rates and encouraged .
3. Private sector was allowed to all sector these three .
4. Freedom in fixing prices .
5. Simplification of procedures for attracting foreign capital .
6. Banks were allowed to fix lending rates .
(b) Privatisation - In a narrow sense , privatisation implies the induction of private ownership in public owned enterprises . In broad sense , it refers besides private ownership . The induction of private management and control in the public enterprise . Privatisation was needed for the following reasons -
1. Their was a need for more and more instruments and government had limited resources .
2. Need for professional management.
3. Use of resources properly .
4. Freedom in decision making process .
5. There was a need to bring personal touch in working .
Following methods are adopted for privatisation -
1. The number of public sector undertakings was reduced to three sectors only . All other sectors were opened for private investment .
2. Central Government decided to withdraw from industrial sector and public sector units to be privatised through disinvestment .
3. Board for Industrial and Financial Reconstruction (BIFR) was setup .
(c) Globalisation - Globalisation means integrating the economy of a country with the world economy . This implies that there shouldn't be a bar on the entry of foreign investors coming to the country and entrepreneurs from the country are also allowed entry in other countries . Globalisation was needed for following reasons -
1. The import can liberalised by removing many restrictions .
2. Foreign Direct Investments were liberalised by allowing more than 50% where in some sectors.
3. Import duties were reduced greatly .
4. Convertibility of Rupee was allowed .
5. Export duty was abolished .
6. Tariff structure was rationalised .
7. Discuss about the impact of Government Policy changes on Business ?
Ans - 1. Easy in entering business - The New Economic Policy abolished licensing system . After the economic reforms , the establishing of new units became easy .
2. Improved Technology Environment - The entry of MNC's brought Global competition and introduced latest technology into production methods .
3. Increase in Competitiveness - The liberalisation policy allowed free entry of MNC's in Indian markets . This increased intense competition for Indian firms .
4. More Demanding Customers - Before economic reforms their was a shortage of products in the market . The entry of MNC's , the product became abundant and the customers became choosy .
5. New Market Strategy - Earlier the producers were first producing the goods and then going to customers for selling them , it is selling concept . The things have now changed . Now a businessman has to first conduct market research to know the needs of the customers and then go for production , it is marketing concept .
6. Thrust on Exports - The entry of more firms in Indian Markets have shifted the emphasis on exports . Every firm is trying to enter foreign markets to increase rates .
8. What do you mean by Demonetisation ? What are the characteristics or nature of Demonetisation ?
Ans - Demonetisation means an act of stripping the legal tender status of currency units . It happens whenever there is a change of any national currency . It involves the withdrawal of the current form of forms of money from being circulate usually replaced with new notes or coins .
Features of Demonetisation are as follows -
1. Demonetisation as a tax administration measures - Due to demonetisation people had to declare their cash holding to get it exchange from bank.
2. Non tolerance of tax evasion - Demonetisation also indicated that government will no longer accept tax evasion .
3. Tax administrating and channelising saving into formal financial system - Demonetisation led to tax administration , channelising savings into the formal financial system . As much of the cash deposited by people for exchange will be offered to people for loan under new schemes .
4. Creating less cash or Digital Cash lite economy - Another feature of demonetisation is to create a less or cash - lite economy i.e. channelising more saving through the formal financial system and improving tax compliance .
